usa scrap & waste exports up 135%

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    The Daily Reckoning

    Paris, France

    Friday, January 14, 2005


    *** We're so great; foreigners just can't wait to give us their money...America - the world's leading exporter of trash...

    *** Profane elegance...lose your illusions...delightful absurdities...

    *** The Fed should have built an ark instead of a dam...Oliver Stone's Alexander is a "sleeper"...and more!


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    Once again, we stopped dead in our tracks this morning and marveled at....

    ...well, we don't know what to call it - the exquisite, pernicious system that makes fools of us all.

    Some of our brightest economists are convinced that the trade deficit is nothing to worry about. Foreigners WANT to give us money, they say. Because we are so great. Could anything be wrong with that?

    (Of course, there are nasty men who want to give little girls candy too...)

    Apple sold so many iPod's last year that its earnings rose 400%. Andy Kessler says that's what makes us so great - we think up these great ideas...and the poor schleps overseas have to sweat to make them. And then, guess what - we actually make more profit on them than they do.

    Maybe Mr. Kessler has not seen the latest details on America's trade deficit. Over the last 12 months, exports of "high tech products" actually FELL 21%. About the only area we are making progress is in exporting "scrap and waste" - up 135%. America, in other words, has become the world's leading exporter of trash.

    But wait, Mr. Kessler would protest that though the United States may not actually manufacture or export high tech products, it earns a handsome royalty by inventing, creating and designing the products that are made elsewhere. Apple doesn't actually have to assemble the iPods in America in order to make money on them, he would point out.

    How nice for Steve Jobs. And how nice for you, if you can dream up another iPod product and get Asians to make it for you. But the latest trade numbers show that even with iPod revenues flowing like gin into Apple's coffers, the tide of cash is still running out of the United States and into foreign hands. Even with all the trash the U.S. is shipping overseas, at the current rate, 2005 might see a new record deficit of $700 billion or more. Yes, it comes back. But only as the foreigners buy our assets and lend us money on our houses.

    And here is the profane elegance of it, dear reader. Recycling the foreigners' earnings into U.S. assets misleads the public as well as economists.

    "The willingness of China to put its money into Treasury securities has served to both prevent the needed changes in currency values and to hold down American interest rates and thus encourage more American consumption and bigger trade deficits," explains Floyd Norris in the International Herald Tribune. Get it? The nice Chinese people lend us money so we won't have to cut back on our spending. Interest rates in the United States stay lower than they might otherwise be...which boosts up asset prices higher than they might otherwise be...and helps hold down consumer prices lower than they might otherwise be. This makes American economists think that everything is fine. And it makes American consumers think they might as well continue spending. The spending increases China's profits...and gives them more money to lend - thus reinforcing all the illusions that Art Laffer and Andy Kessler take as fact.

    Not that we have anything against the Chinese. We would suggest that they do a better credit check on their customers, but how can you fault a people who work 12 hours a day and save 40% of their income? Good luck to them!

    But that is what is so delightfully absurd about the world economy, circa 2005: While Americans buy things they don't need with money they don't have, the Chinese are building factories in order to produce products with slim profit margins for fat people who can't afford to pay for them. The whole thing is bound to turn out badly. But it should be entertaining
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